U.S. growth for the second quarter of 2017 was recently upgraded by the Department of Commerce to 3% from 2.6%, fuelled by continued consumer spending. But investors shouldn’t take strong consumer sentiment and GDP growth at face value.

Why? “Interest rates, economic growth and inflation have been somewhat dis-aggregated over the last several years, in that interest rates have been held below inflation levels,” says Peter Hardy, vice-president and client portfolio manager at American Century Investments in Kansas City, Missouri. “Real rates have been negative for an extended period of time worldwide to stimulate economic growth.”

Low rates might not last much longer, given the “benefits of holding interest rates low […] are diminishing,” says Hardy, whose firm manages the Renaissance U.S. Equity Income Fund. In the meantime, “potential risks are appearing as asset prices are inflated due to the low level of interest rates.”

In addition to rising stock prices, consumer debt is on the rise — resulting in concerns about economic growth. In the U.S., total household debt rose by $114 billion (0.9%) to $12.84 trillion in the second quarter of 2017, reports the Federal Reserve Bank of New York. In fact, U.S. household debt is now $164 billion higher than the previous peak of about $12.7 trillion in Q3 of 2008. (All figures cited are in U.S. dollars.)

This issue hasn’t escaped Hardy and his team’s attention. “We’ve noticed some of that consumption debt,” he says, noting that he and his team don’t think monetary policy decisions are being driven by consumer trends and economic strength.

In fact, it’s more likely that interest rates increasing is more of “a by-product of the Fed normalizing rates to a level that’s closer to inflation in order to keep real rates from being negative,” says Hardy.

“We have seen opportunities in the consumer areas, as opportunities have appeared — not necessarily due to weak demand fundamentals, but due to expectations about Amazon impacting different business models,” says Hardy, who adds, “The general belief [was] Amazon was going to take over the world, and now the belief is it’s going to take over the world quickly.”

The consequences are clear: certain retailers will find their business models disrupted.

“We’re avoiding those types of names, whether it’s a JC Penney or a Sears, that may never come back to the business they once had,” says Hardy. Within consumer staples, he and his team avoid companies with out-of-favour product lines, including packaged food that fails to recognize consumer trends, such as eating local produce.

“Largely speaking in terms of consumer demand, the trend related to Amazon taking demand from traditional retailers is a real one,” says Hardy. “By virtue of that, we’re underweight in the discretionary sector.”